Leasing Scams

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One of the first lessons we learn about business is to take the guarantees of your car dealer with a grain of salt. Of course, there are honest sellers who have your best interests at heart, but the sale still reigns utmost with many. Now that leasing is becoming such a popular option with today’s consumers, the old car dealer scams have taken new shape.

It seems that, these days, there are as many people leasing cars as buying, and with good reason. Leasing offers drivers a more attractive substitute to buying, giving them the flexibility to drive a new car for less cash. The reality is that consumers often find themselves overwhelmed with the pitfalls that can come with leasing.

While consumer protection acts are in place, the regulations governing automobile leasing are not as strict as those that cover automobile sales. Leasing regulations do not call for the same degree of disclosure, resulting in a number of common swindles. What seems like a great offer can quickly turn into a rough transaction.

Here are some of the most common leasing scams, and steps so you can avoid them:

This is the most ordinary scam used by dealers nowadays. Consumers are drawn by advertisements featuring exceptionally low interest rates, only to find that the actual rates they’re paying are much higher. It’s crucial for you to know that in leasing, there is no interest rate. There is a “money factor”, instead. This is a percentage that is used to estimate your monthly lease payment. Most sellers will quote the money factor (for example, 0.004) and misrepresent it as an interest rate of 4%. Others will calculate the “estimated” monthly payment based solely on the value of the car, without adding in extra expenses like security deposits and closing fees that should be amortized over the period of the lease. You can calculate your own estimated lease rate by doing some uncomplicated math. Take the money factor suggested in your lease, and multiply it by 24. This will give you a rough image of what your interest rate will be. (i.e.: 0.004 x 24 = 9.6). As you can discover, the advertised 4% is much low than the actual interest rate of 9.6%. It’s important that you are able to understand the formula and crunch the numbers used to calculate interest rates. Be aware of any additional fees not considered into the dealer’s initial calculations. If you are not contented with the numbers you see, don’t sign the lease.

Early Termination

Getting out of a lease before the term is up is tremendously costly, and there’s no getting around it. Be very wary of lease dealers or agents who offer “low fees” for early termination. This is one of the oldest cheats going. For instance, you ask the showroom sales agent what will happen if you end the lease early, and he or she says, “No problem, you’ll just have to pay an early termination fee of $300”. Actually, this amount is a very small administrative penalty of early termination, when in fact there is also a much stiffer penalty called an “early termination fee” that can run into the thousands of dollars. Don’t confuse the termination fee with the early termination administrative penalty. Be firm that your dealer make these terms crystal-clear, and read the small print carefully and know exactly how much you will get charged should you terminate your agreement before the lease expires.

This is like a carnival game where sellers trick you into believing you’re ahead of the game, while lining their pockets with a little extra money. Some dealers will pursuade you to purchase an extended warranty package when it’s already been factored in to your monthly payment. Others will trick you in to purchasing a three-year warranty, even though you’ve only agreed to a two-year lease. You are under no obligation to pay additional money for a warranty that’s already built into your payments, or for one that goes well beyond your lease term. Be watchful for this scam and stand your ground. The warranty that you need will already be included into your lease agreement.

No Deposit for Security

Any broker who advertises a $0 security deposit is not painting a clear picture. Paying a security deposit is a necessary part of leasing, as it safeguards the dealer against payment default or damage to the vehicle. A security deposit is always factored in to the rent, and may be listed as a “disposition fee”. You are paying a security deposit, even though you may not be conscious of it. It’s vital to get the facts straight, as this money may be refundable to you at the expiration of your lease term.

You work hard for your money, and you need to ensure that it works hard for you. Don’t waste your money away. Know how to spot problem, and how to avoid falling victim to scare tactics and scams.